HMRC annual report and accounts 2017/18

HMRC’s latest annual report and accounts show total revenues collected in 2017/18 of £605.8bn, an increase of £30.9bn (5.4%) over 2016/17. Compliance interventions yielded £30.3bn. For the first time, the figures are also segmented into five taxpayer groups: individuals; small businesses; wealthy individuals; mid-sized businesses; and large businesses.

The report breaks down the revenue figures as follows:

• income tax (31% of total revenue) and NICs (21% of total revenue) increased by 6.8% due to higher employment and wage levels;
• VAT (21% of total revenue) increased by 3.4% due to higher receipts from oil, gas and mining, as well as from the leisure and business sectors;
• corporation tax (9% of total revenue) increased by 4.3% due to rising company profits;
• hydrocarbon oils (5% of total revenue) decreased by 0.4%;
• stamp taxes (3% of total revenue) increased by 7.8% due to a continued rise in house prices;
• CGT (1.3% of total revenue) decreased by 7.1% due to the reduction in rates; and
• tobacco (1.5% of total revenue) remained static;
• alcohol (2% of total revenue) increased by 1.8% due to increases in duty rate; and
• insurance premium tax (1% of total revenue) increased by 37.8% due to a rise in the standard rate.

The remaining 4.2% of total revenue was split between 13 other taxes, duties and levies, the three largest shares belonging to IHT, APD and customs duties.

The total includes £141.9bn that had not been collected at 31 March 2018 (including £111.6bn of tax accrued, but not yet paid).

HMRC is changing its systems to focus activities and services on five distinct taxpayer groups:

• individuals (income below £150,000 and assets below £1m) – this group of some 45m taxpayers accounted for receipts estimated at £255bn;
• small businesses (turnover below £10m and fewer than 20 employees) – a group of over 5m businesses, with receipts estimated at £110bn;
• wealthy individuals (income above £150,000 or assets above £1m) – a group of around 500,000 taxpayers, accounting for receipts estimated at £57bn;
• mid-sized businesses (turnover between £10m and £200m, or 20 or more employees) – a group of around 170,000 businesses, with receipts estimated at £45bn; and
• large businesses (turnover exceeding £200m) – around 2,000 businesses, with receipts estimated at £135bn.

The extra yield from compliance interventions amounted to £30.3bn (£28.9bn in 2016/17). This overall figure comprises several elements, including certain estimates:

• £10.3bn of cash expected;
• £9.7bn of revenue loss prevented;
• £6.1bn of future revenue benefit (estimated effect of compliance interventions spread over future years);
• £3.4bn of product and process yield (estimated impact of legislative changes to close tax loopholes, etc); and
• £0.8bn of revenue from accelerated payment notices.

In 2017/18, HMRC has also begun to show compliance yield split between its various directorates: large business (£8.7bn); wealthy and mid-sized business (£4.3bn); individuals and small business (£4.8bn); counter-avoidance (£1.8bn); fraud investigation service (£5.4bn); and other (£5.1bn). Diverted profits tax is estimated to have yielded £388m in 2017/18 (which includes additional corporation tax resulting from behavioural change).

Investigations and enforcement action against organised crime generated or protected £3.3bn. The amount of revenue protected by the new disguised remuneration loan charge is estimated at £290m in 2017/18. The loan charge is expected to protect £2.5bn by 2021. Changes to the public sector off-payroll working rules are estimated to have raised an additional £410m in 2017/18.

Total tax under consideration by HMRC’s large business directorate (the estimated potential additional tax liability in each case before a full investigation is carried out) was £27.7bn at 31 March 2018.

HMRC’s total expenditure included £26.2bn paid out in tax credits, and £11.7bn paid out in child benefit. HMRC’s administration costs, including staff, amounted to £3.9bn. The cost of collecting taxes was 0.53p* for each pound collected in 2017/18.

Performance against customer service objectives during 2017/18 included:

• 80.7% of post cleared within 15 working days from receipt and 97.1% within 40 working days; and
• phone calls answered in an average of around 4 minutes (against a target of 5 minutes), while 14.6% of callers waited 10 minutes to be connected to an adviser (against a target of 15%).

HMRC acknowledges that the 10% decrease in taxpayer demand for contact by phone over the last year is slower than expected following introduction of new digital channels, including online personal tax accounts and business tax accounts. See https://bit.ly/2LeHIut.

The National Audit Office (NAO) has issued its report alongside HMRC’s accounts, expressing concern at the continued rise in error and fraud affecting tax credits and child benefit.

The NAO says it is still not clear what impact the reprioritisation of HMRC’s transformation plans, as revealed to the public accounts committee, will have on the intended benefits of the programme. ‘It is too soon to determine how effective the execution of these plans proves to be in terms of value for money’, commented the head of the NAO, Sir Amyas Morse (https://bit.ly/2Lsqs1R).

* Note: this report has been corrected to explain that cost of collecting taxes was 0.53p* (not 53p) for each pound collected in 2017/18